The Income-tax (Second Amendment) Act, 1981 -Explanatory notes on the provisions of - Income Tax - 345/1982

The Income-tax (Second Amendment) Act, 1981 -Explanatory notes on the provisions of Circular No. 345 Dated 28/6/1982 Introduction The Income-tax (Amendment) Ordinance, 1981, was promulgated by the President on the 11th July, 1981. The Ordinance was replaced by the income-tax (Second Amendment) Bill, 1981, which was introduced in the Lok Sabha on 8th September, 1981. The Bill was passed by both he Houses of Parliament and received the assent of the President on 19th September, 1981, and has been enacted as Act No. 38 of 1981.* This circular explains the substance substance of the provisions of the Income-tax (second Amendment) Act, 1981. Background 2.1 The proliferation of black money poses a serious threat to the national economy and it was considered necessary to take effective steps to contain and counter this major economic evil. The Government have, in recent past, taken several legislative and administrative measures to unearth black money. The Income-tax (Second Amendment) Act, 1981 (hereinafter referred to as the Amending Act), representing another step in the same direction. 2.2 It came to Government's notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative society and partnership firms either in their own names or in benami names. The Income-tax (Second Amendment) Act, 1981, seeks to counter attempts to circulate black money in this manner. The mode of payment of term deposits--Section 269T 3.1 The Income-tax (Second Amendment) Act, 1981, has inserted a new Chapter XXB regarding requirement as to mode of payment in certain cases to counteract evasion of tax. Sub-section (1) of section 269T provides that no company (including a banking company), co-operative society or partnership firms will repay to any person, any deposit made by him with such entity otherwise than by an account of the deposit, or the aggregate amount deposited along with the interest, if any, is or exceeds Rs. 10,000. The first proviso to sub-section (1) provides that where the repayment of such term deposit to an account, if any, maintained with such company or bank by the person to whom such deposit has to be repaid. The second proviso to sub-section (1), however, provides that the provisions of this sub-section will apply only in relation to the repayment of any deposit made before the 19th September, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981, received the assent of the President. 3.2 Sub-section (2) of new section 269T provides that no branch of a banking company or co-operative bank and no other company or co-operative society or a partnership firm will repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit, if the amount of the deposit together with interest, if any, payable thereon is or exceeds Rs. 10,000. The provisions of this sub-section also apply in case such person with the branch of the banking company or the co-operative bank or any other company or co-operative society or the firm either in his own name or jointly with any other person on the date of such repayment together with interest, if any, payable on such deposits is Rs. 10,000 or more. The provisions of sub-section (1) apply only where the amount of each deposit (together with interest thereon), is Rs. 10,000 or more. In other words these provisions do not apply in cases where the aggregate amount of the deposits made by the depositor (either in his own name or jointly with any other person), with a branch or bank, etc., exceeded the specified limit of Rs. 10,000. In order to make the relevant provisions more effective, sub-section (2) of section 269T has been made applicable in all cases where the aggregate amount of the deposits held by a person with a branch of a bank including a co-operative bank or with any other company or co-operative society or partnership firm either in his own name or in a joint name with any other person on the date of repayment along with interest, if any, is not less than Rs. 10,000. 3.3 The first proviso to sub-section (2) provides that where the repayment of the term deposits to be made by a branch of the bank company or co-operative bank, any such repayment can also be made by crediting the amount of such deposit to the savings bank account or current account, if any, maintained with such branch by the person to whom such deposit is required to be repaid. It may be noted that the first proviso to sub-section (1) provides for such repayment to be made by the bank, company or co-operative bank by crediting the amount of such deposit to any account maintained by such person with such banking company or the co-operative bank. 3.4 The second proviso to sub-section (2) provides that the provisions of this sub-section shall apply in relation to the repayment of any deposit to be made on or after 19th September, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981, received the assent of the President. 3.5 The Explanation to section 269T defines certain expressions used in the section. Clause (i) of the Explanation defines "banking company" to mean to have the same meaning as assigned to it in clause (a) of the Explanation to section 40A(8). Further, "deposit" as defined in clause (ii) of the Explanation, means any deposit or money which is repayable after notice or repayable after a period. [Section 2 of the Amending Act ] Mode of repayment of the Special Bearer Bonds, 1991 - Section 269TT 4.1 Section 3 of the Amending Act has inserted a new section 269TT in the income-tax relating to mode of repayment of the Special Bearer Bonds, 1991. 4.2 New section 269TT provides that notwithstanding anything contained in any other law for the time being in force the repayment of the Special Bearer Bonds, 1991 at the time of its maturity will be made only by an account payee cheque or account payee bank draft drawn in the name of the person to whom such repayment is to be made. It may be mentioned that the Supreme Court had dismissed the writ petitions filed by R.K. Garg and others challenging the constitutional validity of the Special Bearer Bonds Scheme. At the time of hearing of the writ petitions, Government had undertaken to repay the Bonds at the time of redemption by account payee cheque or account payee bank draft only. Section 3 of the Amendment Act has made specific provisions in this behalf. [Section 3 of the Amending Act] Failure to comply with the provisions of section 269T - Section 276E 5.1 Section 4 of the Amending Act has inserted a new section 276E in the Income-tax relating to failure to comply with the provisions of section 269T. The new section provides that if a person without reasonable cause or excuse repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, that is to say, otherwise than by an account payee cheque or account payee bank draft or by credit to the bank account of the payee as explained above, he will be punishable with imprisonment for a term which may extend to two years and shall also be liable to a fine equal to the amount of such deposit. [Section 4 of the Amending Act] Amendment to the provisions relating to punishment for second and subsequent offences - Section 278A 6.1 Section 5 of the Amending Act has amended section 278A of the Income-tax Act relating to the punishment for second and subsequent offences by including a reference to section 276E therein. In other words, if any person convicted of an offence under section 276E is again convicted for the same offence, he will be punished for the second and every subsequent offence with rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 7 years and with fine. [Section 5 of the Amending Act] Prosecution to be at the instance of Commissioner - Section 279 7.1 Section 6 of the Amending Act has amended section 279 of the Income-tax Act which provides that prosecution for offences under the Act shall be at the instance of the Commissioner. Section 6 of the Amending Act has amended sub-section (1) of section 279 to include a reference to section 276E therein. The effect of the amendment will be that a person shall not be proceeded against for an offence under section 276E except at the instance of the Commissioner. [Section 6 of the Amending Act] Repeal and Saving 8.1 Sub-section (1) of section 7 of the Amending Act provides for the repeal of the Income-tax (Amendment) Ordinance, 1981. Further, sub-section (2) of section 7 of the Amending Act provides that notwithstanding any such repeal, anything done or any action taken under the Income-tax Act, 1961 as amended by the said Ordinance will be deemed to have been done or taken under the Income-tax Act, 1961, as amended by the Income-tax (Second Amendment) Act, 1981. [F.No.131(37)/82-TPL]